The explosion of artificial intelligence (AI) seems to have come from nowhere. Where we once read about robots who could think for themselves in comic books and film now appear to be a part of our daily lives.
But it is not just in our science fiction that AI exists. It is everywhere but mostly can be found in the fintech world, first appearing in banking during the mid-1980s. Tech advancements and competitive challenges have proved to be the biggest transformational forces in the payments industry that have combined to meet both consumer demand and standard banking regulations.
Before we take a detailed look at the technology itself, it is worth taking a step back to understand cross border payments themselves. Any financial transaction that involves organizations or individuals, banks or payment settlement institutions operating in two or more different countries is called cross border payment.
Cross-border payments are notoriously expensive. They are also slower, less reliable and less transparent than domestic payments, in which transfers are now (or soon will be) both instant and instantaneously visible.
To complete the cross-border payments, both parties may need to make use of the automated services provided by a third-party foreign currency exchange platform.
Today AI and Machine Learning are enabling financial institutions to address the processes of universal cross-border payments. But what exactly is AI/ML, and why is it so important in the world of cross border payments?
Robots and computers, they say, are only as clever as the person who programmed them. Yet, AI quite simply means that machines have an intelligence that is not triggered by human action rather than an artificial action, which triggers the machine to react in a certain way. In other words, what we do naturally, a machine can do artificially. They mimic natural intelligence with decision-making tools.
Why do we need AI? We need it to problem-solve and allow fintechs to streamline cross border payment services for end-users. More importantly, gaining vital insights into consumer behaviour enables them to finely tune their processes through cleverly designed apps to serve the personal financial management of key target markets.
Yet AI and machine learning (ML, which alone can be limiting) are not just for the big banks. AI has opened a whole new, shiny world of possibilities for fintechs, large and small. Gone are the days of needing to obtain a massive budget and a sea of technicians to help build a sleek financial experience. These days, the smaller businesses are giving the big guys a run for their money by matching customer service excellence and their products with greater clarity and security, all through AI-powered solutions
Customer service at your fingertips
Fed up with being kept on the phone endlessly when trying to get through to a helpdesk? AI apps can be built into a fintech website and act as customer service assistants through pop-up chat boxes on your screen. Although they may not deal with the most complex of issues, they are often programmed to help with simple tasks. The ‘bot’ is loaded with a series of frequently asked questions and responses, meaning that customer service can be open 24 hours a day. They can even flag up to a human assistant which questions will need further human help.
One of the critical areas where artificial intelligence is checking out a customer for creditworthiness. Why? Banks and financial institutions still must make money – they are still businesses, so to find out if someone is creditworthy can help them calculate the cost (the risk) more effectively – often by looking at elementary personal information.
A fintech can find out from their own data if a customer is a risk or not, instead of relying on external sources. The good news is, is that everyone is fairly treated. Where a bank would be forced to charge across the board if the risks are high, a fintech using AI means that the cost is minimized, meaning a lower price tag for credit-worthy customers.
AI can also dramatically reduce the risk of fraud which is commonplace online. AI can spot fraudulent or suspicious activity (identifying them through behavioral patterns) much faster than any human intervention meaning customers and businesses have greater peace of mind regarding cybersecurity, especially where business transactions are concerned.
The future of AI
Eventually, AI will be everywhere. Right now, in fintech, it continues to keep our financial transactions safe and our costs low. Yet, the world of AI is growing all the time, and as each year passes and our lives become increasingly digital, AI will be there to streamline every process. Little stands in its way other than our financial institutions’ ability to keep up with it.
In the world of finance, there can be no future without AI if we are to move our finances yet further online. All that is required for banks and fintechs is to equip their human workforce with the necessary tools to keep up with the demand. Our financial lives are becoming more complex, so it’s up to fintechs to keep pace with the market.
Cross-border payments are vital for economic prosperity, international trade, global financial stability, continuing growth in international eCommerce and especially in poverty reduction. Having a frictionless solution based on AI for cross border payments is therefore essential. To put that into context it is why the G20 has made improving cross-border payments a priority and asked the Financial Stability Board (FSB) to come up with solutions; why the United Nations has set a target of reducing remittance charges to 3 per cent by 2030; and why the Committee on Payments and Market Infrastructures (CPMI) has published a list of 19 “building blocks” to enhance cross-border payments.